Understanding Division 296 Proposed Superannuation Tax on Balances Over $3 Million
What You Need to Know About the Proposed Super Tax Changes
The Australian Government has proposed a significant change to how large superannuation balances are taxed. Known officially as Division 296, this measure would introduce an additional tax on superannuation earnings for individuals with a Total Superannuation Balance (TSB) exceeding $3 million.
While the proposal has been announced and significantly revised in October 2025, it is crucial to understand that Division 296 has not yet been legislated. The original bill lapsed following the May 2025 federal election and will need to be re-introduced to Parliament.
Here's everything you need to know about Division 296, who it affects, and what it means for your retirement planning in Australia.
What Is Division 296 and Why Was It Revised?
Division 296 is a proposed tax measure that would apply an additional tax on superannuation earnings attributed to balances above the $3 million threshold. The Government’s stated objective is to ensure that superannuation tax concessions are better targeted and that the system remains sustainable and equitable.
Currently, superannuation earnings are generally taxed at:
15% in the accumulation phase (while you're still building your super).
0% in the pension phase (when you're retired and drawing a pension) up to your Transfer Balance Cap.
These concessional rates provide significant tax advantages compared to personal marginal tax rates, which can be as high as 47% (including the Medicare levy). Division 296 would add an extra layer of tax on top of these existing rates for individuals with large super balances.
Key Features of the Proposed Division 296 Tax
Following significant industry feedback on the original proposal, the Government announced major revisions in October 2025 that focused on fairness and practicality:
1. Realised Earnings Only: The Removal of Unrealised Gains
The October 2025 revisions addressed the most controversial aspect of the original proposal by removing the taxation of unrealised gains. Under the revised plan, Division 296 would apply only to realised earnings, such as:
Dividends
Interest income
Realised capital gains (from actual asset sales)
This change eliminates the major liquidity concern that arose when individuals could have been taxed on 'paper gains' they hadn't actually received in cash.
2. Indexed Thresholds
To prevent 'bracket creep,' both thresholds would now be indexed to CPI:
The $3 million threshold would increase in $150,000 increments.
The $10 million threshold would increase in $500,000 increments.
3. Proposed Start Date
The new proposed commencement date is 1 July 2026, with the first assessments expected after the 2026–27 financial year. This delay provides more time for the final legislation, consultation, and necessary changes to super fund administrative systems.
Who Will Be Affected by the Superannuation Tax Over $3 Million?
According to Treasury estimates, approximately 80,000 Australians (about 0.5% of the population) currently have superannuation balances exceeding the $3 million threshold and would be affected by Division 296 in its first year.
Typical Profiles of Affected Individuals:
Long-Term Retirees: Savers who have built significant balances through decades of compound growth.
High-Income Professionals: Doctors, lawyers, and executives who have consistently maximised their concessional and non-concessional super contributions.
Business Owners: Entrepreneurs who have sold a business and contributed proceeds into a Self-Managed Super Fund (SMSF).
Property Investors: Individuals holding high-value commercial or other property assets within an SMSF.
Important Note for Younger Australians: While the number is small now, high-earning younger Australians who consistently maximise contributions may find themselves exceeding the $3 million indexed threshold by retirement age due to decades of compound growth.
How Division 296 Would Be Calculated: The Proportionate Method
The calculation applies the Division 296 tax to the earnings that are proportionally attributable to the part of your TSB above the $3 million or $10 million thresholds.
The methodology would broadly follow these steps:
Determine Your Total Superannuation Balance (TSB): Aggregates all your super accounts (Industry, Retail, SMSFs, Defined Benefit).
Calculate Your Superannuation Earnings: Based on the fund’s realised income and realised gains, adjusted for contributions and withdrawals.
Determine the Proportion Above the Threshold: Work out what percentage of your TSB exceeds $3 million (and potentially $10 million).
Apply the Proportional Calculation: Multiply your total realised earnings by the proportion calculated in Step 3.
Calculate the Division 296 Tax: Apply the relevant additional tax rate (15% or 25%) to the proportional earnings.
Critical Points for Division 296 Planning
1. Payment Options
If the legislation passes, you will receive a personal tax assessment from the ATO. You will have two options to pay the Division 296 tax:
Pay personally from your own bank account.
Elect to have the tax paid from your superannuation fund (requires a release authority to the fund).
2. Loss Carry-Forward
If your super fund experiences negative realised earnings in a year, or your balance falls, you cannot receive a refund of tax paid in prior years. However, losses can be carried forward to offset Division 296 earnings in future years.
3. Super Still Highly Concessional
Even with an effective tax rate of 30% (or 40% for ultra-high balances) on the excess earnings, superannuation generally remains a highly tax-effective structure for retirement savings when compared to earning an income outside super at marginal tax rates up to 47%.
Next Steps: Wait for Certainty, but Plan Ahead
Will Division 296 definitely become law? No. The revised proposal, while addressing major industry concerns, still needs to be re-introduced to Parliament and successfully pass both houses. Passage is not guaranteed.
Should I withdraw funds from super now? In most cases, no. Making irreversible decisions based on proposed (but unlegislated) law could be costly. Withdrawing funds may trigger Capital Gains Tax, remove creditor protection, and see future earnings taxed at your full personal marginal rate.
Planning Considerations (Once Legislation is Clear)
If you are likely to be affected by the Division 296 super tax, consider working with a qualified financial adviser to model:
Spouse Equalisation: Using mechanisms like contribution splitting to ensure both spouses stay below the $3 million threshold.
Investment Structure Review: Assessing whether certain assets are better held inside or outside super, especially for amounts above the $10 million tier.
Timing of Asset Realisations: Since the tax applies to realised gains, strategic timing of asset sales could help manage exposure across financial years.
💡 The Bottom Line
Division 296 is a significant proposed change designed to reduce tax concessions on very large superannuation balances. The key October 2025 revisions—including the removal of unrealised gains, indexation of the $3 million threshold, and the new two-tier structure—make the proposed tax far more practical and fairer than the original draft.
For the estimated 99.5% of Australians with super balances below $3 million, Division 296 will have no direct impact. For those above, the key message is: understand the proposal, model your potential exposure, but wait for legislative certainty before making significant, irreversible changes to your retirement strategy.
If you’d like clarity on how Division 296 may affect your long-term planning, reach out to our SMSF team. They’ll connect you with our colleagues at AS Wealth Advisors, who can provide personalised guidance to help you make confident, well-informed decisions.
This article is general information only and does not constitute financial or tax advice. Division 296 has not been legislated, and details may change. We strongly recommend consulting with qualified financial and tax advisers before making any decisions about your superannuation.